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November 19, 2013

Schorsch Open to Buying More Nonpublic Companies

Bringing diverse operations together via RCAP can be a 'confusing' story to tell and sell, he says

Nicholas Schorsch has run out of public independent broker-dealers to buy.

“The only ones left … are LPL” and Raymond James, he said in an interview with ThinkAdvisor.

Schorsch and the empire he leads, which includes American Realty Capital (ARCP) and RCS Capital (RCAP), just moved to gobble up Summit Financial Services Group (SMMF) for $49 million on Monday.

That announcement came on the heels of news last month that RCS Capital was buying Investors Capital (ICH) and Hatteras Funds.

Grabbing a public entity is “expedient,” Schorsch says, because of the “measurable” financial results that are readily available about these companies.

Still, he adds, private firms are worthwhile investments, too, like First Allied Securities, an independent broker-dealer that RCAP acquired earlier this year.

“We are open to nonpublic companies for deals,” Schorsch said, though he wouldn’t comment on industry speculation that RCAP could be eying privately held IBDs, such as NEXT Financial and Kovack Securities.

As broker-dealers like Summit Financial, Investors Cap and First Allied are brought together, “Synergies are able to be recognized,” he said.

“We are not going to change or migrate head offices, so [advisor] clients won’t lose their touchpoints,” Schorsch insisted. “This is not about consolidating and getting rid of personnel. It’s really about growth.”

RCAP's overall growth offers broker-dealers support. “We have financial resources and capital to invest in better systems, more diverse products, better clearing and bigger clearing relationships, and we can make markets in multiple securities or trade bonds en masse for advisors and investors.”

As he sees it, “Our job is about size and scale. This is a company with about $50 billion of assets under management. We’ve raised $10 billion of equity on the wholesale side, for instance, and $13 billion on the investment-banking side. We’re like Evercore [Group] or Greeenhill …” which are independent investment banking and advisory firms, Schorsch said. “We have Hatteras Funds …and are diversifying very rapidly.”

As the operations come together and growth, executives like Larry Roth — formerly head of the AIG-owned Advisor Group and now in charge of Realty Cap Securities — will have their hands full.

“Part of our story is attracting great people, like Larry Roth and Marshall Leeds [CEO of Summit Financial]. It’s a hell of a team, considering it can be hard to get people to work for a company that not everyone believes in. It’s very encouraging,” Schorsch said.

Still, he bemoans the fact that he has to tell (and sell) a "complicated story," since RCAP and its sister companies operate in five sectors: the wholesale broker-dealer, retail (encompassing the IBDs), investment banking and capital markets, transactions management and the transfer-agency businesses.

"This can be confusing," Schorsch said. "Our job is to articulate the story and prove out the model, while we drive growth for investors."

With more acquisitions planned for next year, after this year's meal is fully digested, RCAP seems to have a full plate in store for 2014.